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S.F. No. 1217 - New markets tax credit (first engrossment)
 
Author: Senator Kari Dziedzic
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: March 29, 2016



 

 

Section 1

Subdivision

Provision

1

Establishes the new markets tax credit and provides definitions.

 

  • Annual allocation authority is the amount of credit authority that DEED may allocate for projects for a year.
  • Applicant is a qualified community development entity.
  • Applicable percentage is used to determine the percentage rate of the credit for each taxable year.  The percentage is five percent for the years 0 to 3 and six percent for years 4 to 7.   Thus, the total credit percentage is 39 percent (5% * 3 + 6% * 4 = 39%).
  • Commissioner is the commissioner of DEED.
  • Credit allowance date is the day on which the qualifying equity investment was made and that day on each of the next six calendar years.
  • Greater Minnesota means area of the state outside of the jurisdiction of the Metropolitan Council.
  • Internal Revenue Code means the code as defined under the individual income and corporate franchise tax chapters of Minnesota Statutes.
  • Investments held by an issuer means equity investments and loans held by an issuer. Amounts repaid to or redeemed by the issuer must be reinvested within 12 months, except that the reinvestment requirement is not applicable after the six year period after the credit was received.
  • Issuer is a qualified community development entity or a subsidiary that applies for an allocation of tax credits. Issuers apply for tax credit allocations and then sell the credits to investors and use the proceeds to make investments in qualified low-income community investments.
  • Purchase price is the amount paid by an investor for a qualified equity investment to receive an allocation for a tax credit.
  • Qualified active low-income community business has the same meaning as applies under the federal new markets credit, but excludes:
  • businesses engaged in insurance, banking, lending, lobbying, political consulting, or leisure;
  • activity consisting of operating a golf course, country club, suntan or hot tub facility, massage parlors, facilities used for gambling, and liquor stores (offsale only).
  • Qualified community development entity has the same meaning as applies under the federal new markets credit, with the following additional requirements:
  • the entity has received an allocation of the federal credit;
  • the federal allocation provided credits for investments in Minnesota; and
  • its primary mission must be economic development and it must have experience serving Minnesota businesses.

 

  • Qualified equity investment means an equity investment in a qualified community development entity that meets the following requirements:
  • the investment was made after January 1, 2015;
  • the issuer uses at least 95 percent of the purchase price to make qualified low-income community investments (amounts returned or redeemed to an issuer must be reinvested at an 85 percent rate);
  • DEED certifies the investment under a later subdivision; and  
  • a 5-percent limit applies to amounts held in a loan loss reserve.
  • Qualified low-income community investment is an investment (either an equity investment or a loan) to a qualified active low-income community business.
  • Tax credit means the credit allowed against the individual income and corporate franchise tax chapters or the insurance premium tax chapter.
  • Taxpayer is an individual subject to the individual income tax, a corporation subject to the corporate franchise tax, or an insurance company subject to the insurance premiums tax.

2

Authorizes the tax credit.  Credits are not transferable and nonrefundable.  Excess credits may be carried forward for up to five years.  Credits may be passed through to partners or shareholders according to the partnership or shareholder agreement.   

3

 Requires quality equity investment issuers to certify to the commissioner of DEED the anticipated amount of the investment in the first year of the credit allowance date.

4

 Requires the commissioner of DEED to certify up to $300 million in tax credit authority for tax years 2015 to 2017.  Allocations are made on a competitive basis according to the criteria in a later subdivision.

5

Requires the commissioner of DEED to develop an application form for the credit and requires the commissioner to consider several factors when evaluating and allocating credit applications:

  • Demonstrated experience providing capital or technical assistance to disadvantaged businesses in the state;
  • Direct experience in asset and risk management and fulfilling government compliance requirements;
  • Demonstrated capitalization strategy to ensure in-state benefit of the tax credit;
  • Establishment of standards for wages and benefits exceeding federal poverty guidelines, including monitoring and measuring ongoing compliance;
  • For state allocations paired with federal allocations, whether the state credit leverages benefits under the federal credit;
  • Projected nonstate financial contributions to the project; and
  • Any other criteria the commissioner deems necessary.

6

Requires a recapture of the credit if a federal credit is recaptured.

7

Requires the commissioner to allocate credits based on the competitive criteria in an earlier section, including a proportional allocation to investments in greater Minnesota.

8

Authorizes a qualified community development entity to transfer all or part of its allocation to a subsidiary with 30-day written notice to DEED. The subsidiary is subject to the same rules and restrictions that apply to the parent.

 9

 Requires community development entities to annually report to DEED within 180 days after the end of an entity’s fiscal year. The report must provide information on its investments, including types of businesses, counties in which the investments were made, and number of jobs created or retained, including average compensation. In addition, annual financial statements must be provided within 120 days after the end of the entity’s fiscal year.

 10

 Creates a fund for application fees and requires a nonrefundable application fee, part of which may be deferred following the award of the credit allocation.

11

 Authorizes DEED to impose an administrative fee upon issuance of investments by entities awarded tax credits and requires deposit of the fees in the new markets tax credit account.

 12

Appropriates amounts in the new markets tax credit account to DEED for its administrative expenses related to the tax credit.

 13

 Requires DEED to annually submit a report to the chairs and ranking minority members of the House and Senate tax committees on the implementation of the credit and its economic impact in the state.

14

Provides a sunset for the tax credit authority of 2029, or the year following the year the last of the tax credits have been used or cancelled, whichever is earlier.  Authorizes the commissioner of DEED to issue rules to allow investments for tax year 2015.

Section

 

 2

 Authorizes the new markets tax credit in the income and corporate franchise chapter and authorizes the commissioner of revenue to exercise its existing audit and examination powers under current law to verify eligibility and assess amounts of improperly claimed credits.

Authorizes the new markets tax credit in the insurance premiums tax chapter.

 
 
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